St. Paul has an appetite for upscale, and Lunds plans to deliver

An undated rendering shows the Penfield residential/retail development planned for downtown St. Paul. A 27,000 square foot Lunds grocery will occupy a corner of the lower level of the development, at 10th and Robert streets. It is one of the few urban groceries Lunds has built in the Twin Cities, scheduled to open in spring of 2014. (Photo courtesy City of St. Paul)

Last year, his family-owned grocery chain opened a Lunds store on Hennepin Avenue in downtown Minneapolis, a spot that a generation ago was no one's idea of a prime location. Six years earlier, it placed a stylish Lunds store in Northeast Minneapolis. It then watched both locations thrive.

Now, the CEO and namesake of Lunds has embraced a new challenge. Next spring, he'll open an elegant Lunds store in downtown St. Paul, which hasn't had a full-service grocery store for years, and battled a history as a tough spot for retailers.

"We might be a little bit on the earlier end, but I really believe that all of the dynamic aspects of downtown St.

Lund's Store at 12th and Hennepin in Minneapolis. (Pioneer Press: John Doman)

Paul are evolving positively, even in spite of changing retail," said Russell T. Lund III, or Tres (pronounced "Trace"), as everyone calls him.

The third-generation grocer speaks enthusiastically about the opportunity he sees in St. Paul -- a downtown eager to fill its supermarket void, a growing population of downtown residents, and pieces of the development puzzle falling into place: light rail, entertainment, restaurants, transit, employment.

The store will anchor a corner of the Penfield, a multi-unit residential development that has been in the works for years and is now under construction.

"We looked at a lot of sites," Lund said. "When we looked at this (Penfield) site, it felt pretty good to make a commitment to downtown St. Paul and make a commitment to that rejuvenation and that store."

The 27,000-square-foot store at 10th and Robert streets will carry more than fresh-squeezed orange juice and French cheese. It carries St. Paul's hopes for a livelier downtown and a spur to future growth.

"It's a community anchor point," said Matt Kramer, president of the St. Paul Area Chamber of Commerce, who cites studies about "the importance of a grocery store in creating a sense of neighborhood and a sense of place.

Tres Lund and just some of his employees in the produce dept. at the Lund's Store at 12th and Hennepin in Minneapolis, an urban store that functions much like the new Lunds in downtown St Paul when that store is completed on Friday morning August 2, 2013. (Pioneer Press: John Doman)

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There are skeptics, but don't count supermarket analyst David Livingston among them.

"I'm not going to second-guess what Lunds and Byerly's does," said Livingston, a Milwaukee-based analyst. "They certainly do their research and they have very good people who do their research."

HOT FOODS, FANCY DESSERTS, BIG BOWL

So what will the St. Paul store be like? Based on the downtown Minneapolis store, expect a mixture of upscale glitz, a dollop of luxury, a nod toward the vintage and a big emphasis on convenience -- along with the usual Cheerios, bread and milk.

"There will be an expanded deli area with lots of freshly prepared foods, hot food bars, grab-and-go sandwiches; sushi will be there; and we will have a Big Bowl Chinese Express," said Aaron Sorenson, spokesman for Edina-based Lund Food Holdings Inc., which also operates the Byerly's chain.

"There will be a cafe seating area," Sorenson added. "It won't be a restaurant per se, but it will be a place to grab lunch or dinner and eat right there."

The store also will have a Bachman's floral department, a Caribou Coffee shop and an olive bar.

Still, St. Paul shoppers will find a different emphasis than they'd find in the suburbs.

"What we found to be successful in an urban store, versus a suburban store, is that a larger percentage of that space is devoted to produce and prepared foods, and that really speaks to what we find the needs of the communityare," Sorenson said. "It tends to be smaller households who make more frequent trips with fewer baskets. They're not stocking up. They're purchasing for the meal that night, to grab the key ingredients."

Said Twin Cities supermarket analyst John Dean, "You've got a daytime population that comes to the downtown to work, and if you do it right, you get a lot of lunch business out of it, you get a lot of coffee-break business out of it."

The St. Paul store will have a 100-space free-parking area, and the Penfield is one block from the Tenth Street Station on the soon-to-come light-rail Green Line. There is no skyway access to the block.

With the Penfield construction well advanced, Lunds anticipates taking control of its unfinished space this fall, then finishing out the area. "We anticipate having a grand opening in the spring of 2014," Sorenson said.

SCOUTING ST. PAUL

Lunds and Byerly's have their dominant presence on the Minneapolis side of the river, although five of its 22 existing stores are east-metro locations. Today, there's a Lunds in St. Paul's Highland Park, a Byerly's location on St. Paul's East Side and a Byerly's in Roseville, Eagan and Burnsville. But between those stores was a large gap.

"We know that there's been a void here for us," said Tres Lund.

"If you look at our trade area analysis, it supports the (downtown St. Paul) store," he added. "And geographically, it's well positioned between our existing stores."

Lunds has been scouting St. Paul sites for years. It nibbled at a site on Grand Avenue, but was unable to lock down a deal. It examined sites near the Xcel Energy Center, but backed off because of arena traffic.

The Penfield development was start-and-stop, too. The initial Penfield plan called for a 40-story condominium-and-hotel tower, but that evaporated amid the recession. Then for several years, nothing happened. Finally, in 2012, the St. Paul City Council voted to act as developer for the $62 million Penfield project -- a controversial move -- and the heavy equipment moved in.

The overall Penfield project is receiving a tax break. "There's no government money for our portion," said Sorenson, the Lunds and Byerly's spokesman. "We're going to be a tenant for this space, we'll be paying market-based rates for this lease, so in no way is our store being subsidized."

The store will employ 70 to 80 workers, and yes, it eventually will be hiring. It expects to have a job fair at the site late this year or early 2014.

A SPUR TO DEVELOPMENT?

Downtown St. Paul has always had small food markets, but the absence of a full-service grocery store has been regarded as an obstacle to redevelopment and to enticing people to live downtown.

As Kramer with the St. Paul Chamber puts it, "When a small town loses its grocery store, it's one of those harbingers of, 'Uh oh, bad things are on the horizon.' "

So when a supermarket returns after a long drought, Kramer sees it as a sign of better days ahead.

"Food is not generally the first anchor tenant, but when they build that critical mass, food becomes the accelerant," he said.

Dean, the supermarket analyst, said the secret to placing a supermarket in a redeveloping area isn't just about where. It's when.

"You have to time it just right, and you have to work with the development people," Dean said. "The supermarket being there is going to make development better and easier for people who are coming. But again, you can't be too early or too late."

He added, "A supermarket is one of the entities that people patronize a lot. If it's inconvenient to go to a supermarket, it will be less convenient to live in that neighborhood. It's providing one of the essential services that people demand to say, 'This is a really nice place.' "

Based on the latest numbers, Sara Swenson at the city of St. Paul said that 8,100 people live in downtown St. Paul, up 44 percent over the past decade. That is set to rise as five more housing developments are underway in and near downtown.

"The downtown population is approximately 10,000 -- however, it's growing," Lund said. "That population number is still thin for us ... but what we're deeply bullish on is the depth of the infrastructure development that has been under way for a long time, and the aspirational hopes of multiple mayors."

"There's risk and reward to every location," Lund added. "If we achieve what we are estimating, there's some greater risk, but there's some greater reward for it, too."

A CHANGING MARKETPLACE

Lunds/Byerly's has navigated not just the recession but a seismic shift in the Twin Cities grocery market.

After years of domination by Cub Foods and Rainbow Foods, the Twin Cities area has been ground zero in a huge expansion by nonunion, low-priced grocery operators -- led by Walmart, Target and Aldi.

"We watched the market change pretty dramatically from 2000 to 2010," Lund said. "We had a 50 percent addition in grocery gross square footage to the marketplace, and we didn't have the population growth that supported that.

"We also had some extreme market shifts," Lund added. "We (the Twin Cities) were 11 percent nonunion traditional grocery, and by 2010, it tipped to 50 percent."

Aimed at the affluent consumer, the unionized stores of Lunds and Byerly's were less affected than some, but the expansion left its mark. In 2010, the company surveyed 5,000 customers. Turned out, those customers loved the stores -- but thought its prices were too high.

In response, Lunds and Byerly's reacted by lowering the price of 3,300 items that consumers know best.

At the same time, a new breed of upscale grocer was emerging as a threat. Lunds/Byerly's confronted that by doubling down on its urban stores and overhauling its suburban sites in Edina, Golden Valley and elsewhere.

"You're seeing Whole Foods, you're seeing Trader Joe's, so we've got a new generation of supermarkets coming out, and I think Lunds is trying to stay with the new generation," said Livingston, the Milwaukee analyst.

Thanks to those initiatives, Lunds/Byerly's has been gaining market share in the Twin Cities, Lund said.

DATING HOTSPOT?

Over the years, Lunds also has gained a quirky reputation as a place to find a date or meet a mate.

"I don't have a statistic about how many marriages found their way into Lunds and Byerly's," Lund said. "But an awful lot of our staff met their spouses here. That's been a wonderful thing about our company.

"The reality is, we've had customers who met in our produce department who've asked, 'Could we come on our wedding day to take a photograph?' Which is really endearing. It's kind of cool."

Will the St. Paul store spawn similar romance?

"I wouldn't think it would be any different," Lund said. "It would be a fun part of the store."